In our house Netflix streaming has been a game changer in entertainment. My 7 year old loves it. She has access to hours of her favorite shows. For over a year we have had the one DVD/Blu-ray w/streaming for $11.99. Last night I got an email saying that prices were “going down”, but the plans were separated to $7.99 for streaming and $9.99 for one Blu-ray at a time by mail. This is an increase of 50%, spun as price reduction! It is this kind of double-speak that gives marketing a bad name.

It is my belief that this is a bad move for Netflix and will cost them money and goodwill that is expensive to recreate. Here are my reasons.

The combined streaming and disc-by-mail Netflix offered had no real competition, especially at the price levels. When you separate them out, each service has to compete on its own.

For $2 more a month than Netflix’s new pricing, I can get Blockbuster’s disc-by-mail plan with games and 5 same day swaps at the local store. Blockbuster also gets new titles sooner than Netflix. I can get a movie at Redbox the day I want it for $1. That is 8-10 ten movies a month before it cost me the same as a Netflix system that at most can get me 10 movies a month if I watch them the same day I get them and mail them back that day. In my opinion Netflix disc-by-mail plan is a poor value compared to both Blockbuster and Redbox.

Netflix for our needs is the best all-you-can-eat streaming for older content. Problem is some people may want fresh content from Hulu or Amazon. Amazon Prime has a growing all-you-can-eat plan for about $6.50 a month that also includes free 3 day shipping for the year too. Amazon Prime at Christmas could make the streaming free! So I am sure more than a few people will find that with higher prices, another streaming service fits what they want better.

My feeling is that the marketing team that owns this pricing model is going to be under fire inside Netflix very fast. Yesterday we were happy customers, endlessly paying $12 a month for streaming and one disc at a time service that we hardly used.

Less Happy and More Expensive Customers

Today I am a disgruntled customer looking at all the new competition Netflix has AND I that just cut my monthly payment to them by $4 a month!! All of us that were willing to pay $4 more a month so we could get the occasional Blu-ray are going to leave. Those that they will keep the service at the new rate will be the heavy use more expensive users. So while at first blush, it looked like a good way to increase net revenue per-account, what will happen is that those who were light usage on the disc-by-mail side are gone and they are now paying less. So the average revenue per account may stay pretty level between those that pay the new price and those that go to streaming only. But the cost per account will go up, as the only ones paying more are the ones using it the most. Netflix disc-by-mail service makes no sense if you have a Blockbuster or Redbox location nearby and it make no sense unless you are using it a lot. Netflix just learned how to remove all the lower cost accounts and keep the higher cost accounts.

I will predict that this cynical attempt to raise prices will cost Netflix revenue and will energize it’s closest competitors who’s main weakness was they didn’t include an unlimited streaming program with the disc-by-mail service.

Most of all, it made a lot of happy customers who raved about the service into mad customers who are now complaining on Facebook and Twitter about the service. In one day the Netflix blog entry about new pricing maxed out at 5000 comments with most being very negative and that at midnight they had over a 26 minute wait time on the phones. This tells me Netflix was clueless about the damage this will do to their customer mindset.

In my mind, Netflix went from a useful innovator to a greedy and not very smart company all in just one email!